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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1998
Commission File Number 0-24339
INKTOMI CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3238130
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 South Norfolk Street, San Mateo, California 94403
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (650) 653-2800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
The number of shares outstanding of the Registrant's common stock as of January
31, 1999 was 48,519,253.
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INKTOMI CORPORATION
FORM 10-Q
For The Quarter Ended December 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements (unaudited) Page
----
<S> <C>
a) Condensed Consolidated Statements of Operation
For the three months ended December 31, 1998
and 1997.................................................................. 1
b) Condensed Consolidated Balance Sheets as of
December 31, 1998 and September 30, 1998.................................. 2
c) Condensed Consolidated Statements of Cash Flows
For the three months ended December 31, 1998
and 1997.................................................................. 3
d) Notes to Unaudited Condensed Consolidated Financial Statements................ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................... 6
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................................................. 18
Signature............................................................................................ 20
</TABLE>
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Part I. Financial Information
Item 1. Financial Statements
Inktomi Corporation
Condensed Consolidated Statements of Operation
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
-------------------------------
For the Three
Months Ended
December 31,
-------------------------------
1998 1997
--------- ---------
<S> <S> <C>
Revenues
Network applications $ 5,509 $ 70
Search services 5,219 2,352
-------- --------
Total revenues 10,728 2,422
Operating expenses
Cost of revenues 2,247 794
Sales and marketing 9,319 2,986
Research and development 4,382 2,187
General and administrative 1,210 795
-------- --------
Total operating expenses 17,158 6,762
-------- --------
Operating loss (6,430) (4,340)
Interest income (expense), net 645 (58)
-------- --------
Loss before income taxes (5,785) (4,398)
Provision for income taxes - 1
-------- --------
Net loss $ (5,785) $ (4,399)
======== ========
Basic and diluted net loss per share $ (0.12) $ (0.12)
======== ========
Shares used in calculating basic and
diluted net loss per share 47,696 35,708
======== ========
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
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Inktomi Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
----------------- ---------------
December 31, September 30,
1998 1998
----------------- ---------------
<S> <C> <C>
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 73,993 $ 28,944
Short-term investments 53,020 18,492
--------- ---------
Total cash, cash equivalents and short-term investments 127,013 47,436
Accounts receivable, net 7,911 5,081
Prepaid expenses and other current assets 651 551
--------- ---------
Total current assets 135,575 53,068
Property and equipment, net 17,696 17,362
Other assets 1,562 211
--------- ---------
Total assets $ 154,833 $ 70,641
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of notes payable $ 3,924 $ 3,820
Current portion of capital lease obligations 2,155 2,054
Accounts payable 4,969 4,884
Accrued liabilities 5,251 6,601
Deferred revenue 1,759 1,316
--------- ---------
Total current liabilities 18,058 18,675
Notes payable 4,346 4,050
Capital lease obligations, less current portion 3,890 4,646
--------- ---------
Total liabilities 26,294 27,371
Stockholders' equity
Preferred stock, $0.001 par value; 10,000,000
authorized; none issued and outstanding at
December 31, 1998 and September 30, 1998 - -
Common stock, $0.001 par value; 100,000,000
authorized; 48,485,388 and 46,776,744 outstanding
at December 31, 1998 and at September 30, 1998 49 47
Additional paid-in capital 172,920 82,361
Deferred compensation and other (2,378) (2,871)
Accumulated deficit (42,052) (36,267)
--------- ---------
Total stockholders' equity 128,539 43,270
--------- ---------
Total liabilities and stockholders' equity $ 154,833 $ 70,641
========= =========
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
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Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
-------------------------------
For the Three
Months Ended
December 31,
-------------------------------
1998 1997
---------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (5,785) $ (4,399)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 2,230 637
Amortization of deferred compensation 150 20
Changes in assets and liabilities:
Accounts receivable (2,830) (146)
Prepaid expenses and other assets (1,451) (568)
Accounts payable 85 181
Deferred revenue 443 351
Accrued liabilities (1,350) 218
---------- --------
Net cash used in operating activities (8,508) (3,706)
Cash flows from investing activities
Purchases of property and equipment, net (2,564) (419)
Purchases of short term investments, net (34,768) -
---------- --------
Net cash used in investing activities (37,332) (419)
Cash flows from financing activities
Proceeds from notes payable, net of payments 400 129
Payments on obligations under capital leases (655) -
Proceeds from note receivable 519 -
Proceeds from exercise of stock options and warrants 648 66
Proceeds from issuance of Common Stock,
net of issuance costs 89,913 -
---------- --------
Net cash provided by financing activities 90,825 195
Effect of exchange rates on cash and cash equivalents 64 (25)
Increase (decrease) in cash and cash equivalents 45,049 (3,955)
---------- --------
Cash and cash equivalents at beginning of period 28,944 7,044
Cash and cash equivalents at end of period $ 73,993 $ 3,089
========== ========
Supplemental cash flow information
Cash paid for interest 524 83
========== ========
Assets acquired under capital leases $ - $ 439
========== ========
</TABLE>
See notes to the Unaudited Condensed Consolidated Financial Statements
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INKTOMI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Inktomi Corporation ("Inktomi") and its wholly owned subsidiaries,
Inktomi Ltd. located in London, England and C2B Technologies, Inc. All
intercompany accounts and transactions have been eliminated in the accompanying
condensed consolidated financial statements.
In the opinion of management, the condensed consolidated financial statements
reflect all adjustments that are necessary for the fair presentation of results
for the periods shown. The results of operations for such periods are not
necessarily indicative of the results expected for the full fiscal year or for
any future period. These financial statements should be read in conjunction with
Inktomi's audited consolidated financial statements and notes thereto included
in Inktomi's annual report on Form 10-K for the year ended September 30, 1998
filed with the Securities and Exchange Commission on December 24, 1998 and as
amended by Inktomi's current report on Form 8-K dated December 29, 1998.
NOTE 2. PUBLIC OFFERINGS OF COMMON STOCK
On November 19, 1998, the Inktomi completed a secondary offering of its common
stock in which it sold 1,332,536 shares raising $88.9 million net of issuance
costs and underwriters' discounts.
On June 11, 1998, Inktomi completed an initial public offering in which it
sold 4,712,994 shares of common stock at $9.00 per share. Upon the closing of
this offering, all then outstanding shares of preferred stock converted into
common stock.
NOTE 3. CALCULATION OF PRO FORMA NET LOSS PER SHARE
Shares used in computing basic and diluted net loss per share are based on the
weighted average shares outstanding in each period. The effect of outstanding
stock options and warrants are excluded from the calculation of diluted net loss
per share, as their inclusion would be antidilutive. At December 31, 1998
options to purchase 5,318,498 shares of common stock and warrants to purchase
1,437,460 shares of common stock were outstanding.
<TABLE>
<CAPTION>
Earnings per share
(In thousands except per share amounts) ----------------------------
For the Three Months
Ended December 31,
----------------------------
1998 1997
-------- --------
<S> <C> <C>
Net loss $ (5,785) $ (4,399)
======== ========
BASIC AND DILUTED NET LOSS PER SHARE
Weighted average shares outstanding 47,696 35,708
-------- --------
Shares used in computing
per share amounts 47,696 35,708
======== ========
Basic and diluted net loss per share $ (0.12) $ (0.12)
======== ========
</TABLE>
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NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," which was adopted by Inktomi in the quarter ended
December 31, 1998. SFAS 130 establishes standards for reporting comprehensive
income and its components in a financial statement. Comprehensive income as
defined includes all changes in equity (net assets) during a period from non-
owner sources. Examples of items to be included in comprehensive income, which
are excluded from net income, include foreign currency translation adjustment
and unrealized gains and losses on available-for-sale securities. The
components of comprehensive income are as follows (in thousands):
<TABLE>
<CAPTION>
------------------------
Three Months
Ended December 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Net loss $ (5,785) $ (4,399)
Unrealized loss on available-
for-sale securities (240) -
Foreign currency translation
gains and (losses) 64 (25)
--------- ---------
Comprehensive net loss $ (5,961) $ (4,424)
========= =========
</TABLE>
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, " Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") which is effective for the fiscal year beginning October 1, 1998.
Inktomi is currently determining the disclosures that may be required under this
pronouncement.
In October 1998, Inktomi adopted American Institute of Certified Public
Accountants ("AICPA") Statement of Position No. 97-2 ("SOP 97-2"), "Software
Revenue Recognition," which was amended by Statement of Position 98-4 ("SOP 98-
4"), "Deferral of the Effective Date of Certain Provisions of SOP 97-2" and
Statement of Position 98-9 ("SOP 98-9"), "Software Revenue Recognition". Inktomi
is evaluating the requirements of these pronouncements and the effects, if any,
on Inktomi's current revenue recognition policies.
NOTE 5. STOCK SPLITS
On December 29, 1998, Inktomi's Board of Directors approved a two-for-one
stock split (in the form of a 100% stock dividend) of its common stock.
Stockholders of record on January 12, 1999 were issued a certificate on January
27, 1999 representing one additional share of common stock for each share of
common stock held on January 12, 1999.
In May 1998, Inktomi completed a 2:3 reverse stock split of Inktomi's common
stock.
Historical weighted average shares outstanding and loss per share amounts have
been restated to reflect both stock splits.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Except for historical information, the discussion in this report contains
forward-looking statements that involve risks and uncertainties. Such forward-
looking statements include, among others, those statements including the words,
"expects", "anticipates", "intends", "believes" and similar language. Inktomi's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, the risks discussed in the section titled "Factors Affecting Operating
Results" in this Form 10-Q.
Overview
Inktomi was incorporated in February 1996 to develop and market scalable
software applications designed to significantly enhance the performance and
intelligence of large-scale networks. From February 1996 to May 1996, Inktomi's
operations consisted primarily of start-up activities, including research and
development of Inktomi's core coupled cluster software architecture and dataflow
technology, personnel recruiting and capital raising. In May 1996, Inktomi
released the first commercial application based on its core technology, an
Internet search engine that enables customers to provide a variety of online
search services to end users. In December 1997, Inktomi began licensing Traffic
Server, Inktomi's second application, a large-scale network cache designed to
address capacity constraints in high-traffic network routes. In September 1998,
Inktomi acquired C\\2\\B Technologies, a developer of online shopping
technology, to accelerate its entry into the online comparison shopping
business. The transaction was accounted for as a pooling of interests. Financial
results for all periods have been restated to reflect the combined operations.
Network applications revenues are composed of Traffic Server license,
consulting, support and maintenance fees. Traffic Server license fees are
generally recognized upon shipment of the software. Consulting, support and
maintenance fees are recognized ratably over the service period. Inktomi
generates search services revenues through a variety of contractual
arrangements, which include per-query search fees, search service hosting fees,
advertising revenue, license fees and/or maintenance fees. Per-query, hosting
and maintenance fees revenues are recognized in the period earned, and
advertising revenues are recognized in the period that the advertisement is
displayed. Online shopping has not generated revenues to date.
Inktomi has a limited operating history. Inktomi incurred a net loss of $3.5
million for the period from inception through September 30, 1996, $10.4 million
for the year ended September 30, 1997, $22.4 million for the year ended
September 30, 1998, and $5.8 million for the three months ended December 31,
1998. As of December 31, 1998, Inktomi had an accumulated deficit of $42.1
million. Inktomi has not achieved profitability on a quarterly or annual basis,
and Inktomi anticipates that it will incur net losses for at least the next
several quarters. Inktomi expects to continue to incur significant sales and
marketing, product development and administrative expenses and, as a result,
will need to generate significant revenues to achieve and maintain
profitability.
Inktomi has generated a substantial portion of its historical search services
revenues and network applications revenues from a limited number of customers.
Inktomi expects that a small number of customers will continue to account for a
substantial portion of revenues for the foreseeable future. Accordingly, the
loss of a major customer, or in the case of the search engine business, a
decline in the usage of the search service, could adversely affect revenues.
RESULTS OF OPERATIONS
REVENUES
Total revenues were $10.7 million in the quarter ended December 31, 1998, an
increase of $8.3 million or 343% over revenues of $2.4 million in the quarter
ended December 31, 1997. Two customers represented 11% and 15%, respectively of
total revenues in the quarter ending December 31, 1998.
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Network application revenues totaled $5.5 million in the quarter ended
December 31, 1998. There were no significant network application revenues in
the comparable period of fiscal year 1998. Search services revenues totaled
$5.2 million in the quarter, representing a 122% and $2.9 million increase over
search revenues of $2.4 million in the three months ended December 31, 1997.
Most of these increases came from the addition of new search service customers
and, to a lesser extent, an increase in revenues from existing customers.
A significant portion of search revenues are derived from the HotBot search
service maintained by Inktomi and marketed by Wired Digital, Inc. A portion of
the advertising on the HotBot site is exchanged for advertisements on the
Internet sites of other companies. Inktomi recognizes the value of these
advertisements as barter revenue. Barter revenues were 20% of revenues in the
three months ended December 31, 1997 and were not significant in the three
months ended December 31, 1998. Inktomi believes that barter revenues will
continue to be an insignificant source of revenue in future periods.
EXPENSES
Cost of Revenues
Cost of revenues consists primarily of expenses related to the operation of
Inktomi's search services, which are primarily depreciation and network charges.
Cost of revenues was $2.2 million for the quarter ended December 31, 1998, an
increase of $1.5 million or 183% from $0.8 million in the comparable period of
fiscal 1998. The increase was due primarily to increased depreciation and
network charges resulting from expansions of Inktomi's data center in California
during fiscal 1998, and the addition of a new service facility in Virginia in
the third quarter of fiscal 1998. Inktomi expects cost of revenues to increase
substantially in absolute dollars in the next few quarters as a result of
expanded cluster operation costs.
Sales and Marketing Expenses
Sales and marketing expenses consist of personnel and related costs for
Inktomi's direct sales force and marketing staff and marketing programs,
including trade shows and advertising. Sales and marketing expenses also include
marketing costs related to Inktomi's support of the HotBot search site. Sales
and marketing expenses were $9.3 million for the quarter ended December 31,
1998, an increase of $6.3 million, or 212%, from $3.0 million in the comparable
period in fiscal 1998. This increase was primarily due to an increase in the
number of sales and marketing personnel in the United States, other customer-
related costs, and expenses incurred in connection with attendance at trade
shows and additional marketing programs partially offset by lower HotBot
marketing expenses. Inktomi expects that sales and marketing expenses will
increase substantially in absolute dollars over the next few quarters as Inktomi
hires additional sales and marketing personnel, initiates additional marketing
programs to support its Traffic Server product and establishes sales offices in
additional domestic and international locations.
Research and Development Expenses
Research and development expenses consist primarily of personnel and related
costs for Inktomi's development and technical support efforts. Research and
development expenses were $4.4 million in the quarter ended December 31, 1998,
an increase of $2.2 million, or 100%, over expenses of $2.2 million in the
comparable period in fiscal 1998. The increase was primarily due to an increase
in the number of research and development personnel to support expansion of
Inktomi's search engine and network application businesses, online shopping
development, and increases in quality assurance, technical support and technical
publications personnel. Inktomi believes significant investment in research and
development is essential to its future success and expects that research and
development expenses will increase in absolute dollars in future periods.
Inktomi has not capitalized any software development expenses to date.
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General and Administrative Expenses
General and administrative expenses consist primarily of personnel and related
costs for general corporate functions, including finance, accounting, human
resources, facilities and legal. General and administrative expenses totaled
$1.2 million in the quarter ended December 31, 1998, an increase of $0.4
million, or 52%, over expenses of $0.8 million in the comparable period in
fiscal 1998. This increase was due primarily to an increase in the number of
general and administrative personnel.
Interest Income and Expense, Net
Interest income and expense, net includes income on Inktomi's cash and short-
term investments net of expenses related to Inktomi's financing obligations.
Interest income, net totaled $0.6 million of income in the quarter ended
December 31, 1998 compared to a net expense of $0.1 million in the comparable
period in fiscal 1998. Most of this increase was generated from interest income
on proceeds from Inktomi's June 1998 and November 1998 public offerings of
common stock, partially offset by increased interest charges on debt and capital
lease obligations. Proceeds from Inktomi's recent public offerings are expected
to increase the interest income generated in the near term, partially offset by
an expected increase in interest expense.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments totaled $127.0 million at
December 31, 1998, up from $47.4 million at fiscal year-end September 30, 1998.
Most of the increase came from the November 1998 public offering of common
stock, partially offset by cash used in operations and the purchase of property
and equipment.
Inktomi used $8.5 million in cash for operations in the quarter ended December
31, 1998, an increase of $4.8 million from the $3.7 million used in the
comparable period in fiscal 1998. The increase in cash used in operations was
primarily due to an increase in Inktomi's net loss from $4.4 million to $5.8
million in the first quarter of fiscal 1998 and fiscal 1999, respectively, as
well as increases in accounts receivable and other assets, partially offset by
increased depreciation and reductions in other accrued expenses in the quarter
ended December 31, 1998.
Inktomi has made significant investments in equipment since its inception.
This equipment consists largely of computer servers, workstations and networking
equipment. Inktomi invested $2.6 million in the quarter ended December 31, 1998
as compared to $0.4 million in the quarter ended December 31, 1997. These
investments were made primarily to expand Inktomi's search engine service
capacity.
Inktomi has used debt and capital leases to partially finance its operations
and capital purchases and plans to continue this practice until it begins
generating cash from operations. In the first three months of fiscal 1999,
Inktomi obtained an additional $2.0 million bank loan to partially fund the
acquisition of computer equipment used to increase its search engine capacity.
At December 31, 1998 Inktomi had $14.3 million in loans and capitalized lease
obligations outstanding. The bank loans include certain covenants requiring
minimum liquidity, tangible net worth and profitability over time.
In July 1997, Inktomi and Microsoft entered into a series of agreements
whereby Microsoft selected Inktomi's technology as the basis for Internet search
services to be provided by Microsoft. Under the agreements, Inktomi is
responsible for developing and adding certain features to its core search engine
technology and providing search results to Microsoft using the customized search
engine technology. In addition, Inktomi is responsible for hosting the search
engine software and purchasing and operating the cluster on which the software
runs. Among other matters, Microsoft is obligated to loan the price of new
workstations and related hardware and software purchased to service Microsoft's
capacity needs. At December 31, 1998, loans totaling $2.1 million were
outstanding.
In January 1999, Microsoft announced that it had signed an agreement to
license certain online communications technologies to a third party and in
exchange would adopt the search technology provided
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by the third party as the primary search engine for the MSN Network, replacing
Inktomi's search engine. Microsoft has the right under its hosting agreement
with Inktomi to terminate hosting services by giving Inktomi 30 days prior
written notice. Upon such termination, Inktomi may either repay Microsoft 50% of
the then outstanding loans and keep all workstations and related hardware and
software which were purchased with the loan amounts, or return all workstations
and related hardware and software which were purchased with outstanding loan
amounts in complete satisfaction of the loans. As of this date, Microsoft has
not notified Inktomi that it intends to terminate the hosting agreement.
Inktomi has raised approximately $90.6 million, net of issuance costs, from
equity sales in the first three months of fiscal 1999. This includes
approximately $88.9 million, from Inktomi's November 1998 public offering,
approximately $0.6 million from the exercise of stock options and $1.0 million
from the issuance of common stock to employees under Inktomi's employee stock
purchase plan.
Inktomi's capital requirements depend on numerous factors, including market
acceptance of Inktomi's products, the resources Inktomi devotes to developing,
marketing, selling and supporting its products, the timing and extent of
establishing international operations, and other factors. Inktomi expects to
devote substantial capital resources to hire and expand its sales, support,
marketing and product development organizations, to expand marketing programs,
to establish additional facilities worldwide and for other general corporate
activities. Although Inktomi believes that its current cash balances will be
sufficient to fund its operations for at least the next 12 months, there can be
no assurance that Inktomi will not require additional financing within this time
frame or that such additional funding, if needed, will be available on terms
acceptable to Inktomi, or at all.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software that
records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
Inktomi is currently conducting testing of the current versions of its Traffic
Server and Internet search engine software to determine Year 2000 compliance.
Inktomi has reviewed the software code for each of these applications and
believes that it has identified all instances where date specific information is
required. Inktomi has further investigated whether these date fields contain two
or four digits, and has initiated efforts to upgrade its software when date
fields that contain only two digits are discovered. Based on its preliminary
review of the software code and the results of limited testing, Inktomi believes
that its Traffic Server and search engine applications, when configured and used
in accordance with its documentation, correctly recognize and function when used
with Year 2000 date codes. Inktomi recently acquired its shopping engine
application and has not yet reviewed the software code of this application for
Year 2000 compliance. Inktomi is currently in process of performing more
extensive testing of its Traffic Server application to correct any areas of
deficiency not discovered during the review of the software code. Completion of
this testing is expected by the third quarter of fiscal 1999 whereby Inktomi
will proceed with similar testing for its search engine and review of software
code and related testing of its shopping engine.
Inktomi's software applications run on several hardware platforms and
associated operating systems, including those provided by Sun Microsystems,
Digital Equipment and Silicon Graphics. In addition, Inktomi's software operates
in accordance with several external Internet protocols, such as HTTP and NNTP.
Inktomi's software is therefore dependent upon the correct processing of dates
by these systems and protocols. Inktomi has reviewed information made publicly
available by its hardware platform partners regarding Year 2000 compliance and
researched the date handling capabilities of applicable Internet protocols.
Based on this research, Inktomi does not believe that the underlying systems and
protocols that operate in conjunction with its software applications contain
material Year 2000 deficiencies. However, Inktomi has not conducted its own
tests to determine to what extent its software running on any of its hardware
platforms and in accordance with any of its supported Internet protocols fails
to properly recognize Year 2000 dates.
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Inktomi uses multiple software systems for its internal business purposes,
including accounting, email, development, human resources, customer service and
support, and sales tracking systems. All of these applications have been
purchased within the preceding 18 months. Inktomi has made inquiries of vendors
of the systems that Inktomi believes are mission critical to its business
regarding their Year 2000 readiness. Each of these vendors has indicated to
Inktomi that it believes its applications are Year 2000 compliant. However,
Inktomi has not received affirmative documentation in this regard from any of
these vendors, and Inktomi has not performed any operational tests on its
internal systems. Inktomi is currently in process of formulating its
contingency plans in the event that it is unable to attain Year 2000 readiness.
To date, the costs incurred to perform the assessment of Inktomi's Year 2000
readiness have not been significant. Despite preliminary investigation and
testing by Inktomi and its partners, Inktomi's software applications and the
underlying hardware systems and protocols running the software may contain
undetected errors or defects associated with Year 2000 date functions. Inktomi's
software applications operate in complex network environments and directly and
indirectly interact with a number of other hardware and software systems.
Inktomi is unable to predict to what extent its business may be affected if its
software or the systems that operate in conjunction with its software experience
a material Year 2000 failure. Known or unknown errors or defects that affect the
operation of Inktomi's software could result in delay or loss of revenue,
interruption of search or shopping services, cancellation of customer contracts,
diversion of development resources, damage to Inktomi's reputation, increased
service and warranty costs, and litigation costs, any of which could adversely
affect Inktomi's business, financial condition and results of operation.
Factors Affecting Operating Results
This report on Form 10-Q contains forward looking statements which involve
risks and uncertainties. Inktomi's actual results could differ materially from
those anticipated by such forward looking statements as a result of certain
factors, including those set forth below.
Limited Operating History
Inktomi was founded in February 1996 and has a limited operating history. An
investor in our Common Stock must consider the risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets. These
risks include our:
. substantial dependence on products with only limited market acceptance;
. need to expand our sales and support organizations;
. competition;
. need to manage changing operations;
. customer concentration;
. reliance on strategic relationships; and
. dependence upon key personnel.
We also depend on the growing use of the Internet for commerce and
communication and on general economic conditions. We cannot be certain that our
business strategy will be successful or that we will successfully address these
risks.
History of Losses and Expectation of Future Losses
We incurred net losses of $3.5 million for the period from inception through
September 30, 1996, $10.4 million for the year ended September 30, 1997, $22.4
million for the year ended September 30, 1998 and $5.8 million for the three
months ended December 31, 1998. As of December 31, 1998, we had an accumulated
deficit of $42.1 million. We have not achieved profitability and expect to
continue to incur net losses for at least the next several quarters. We expect
to continue to incur significant sales and marketing, product development and
administrative expenses and, as a result, will need to generate significant
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revenues to achieve and maintain profitability. Although our revenues have grown
in recent quarters, we cannot be certain that we will achieve sufficient
revenues for profitability. If we do achieve profitability, we cannot be certain
that we can sustain or increase profitability on a quarterly or annual basis in
the future.
Substantial Dependence on Traffic Server; Uncertainty of Market Acceptance
Our future growth substantially depends on the commercial success of our
Traffic Server network cache product, which we have licensed to only a small
number of customers. We are initially targeting telecommunications carriers and
Internet service providers for our Traffic Server product. The market for large-
scale network caching is in its infancy, and we are not certain our target
customers will widely adopt and deploy caching technology throughout their
networks. Even if they do so, they may not choose our Traffic Server network
cache product for technical, cost, support or other reasons. Although we have
tested our Traffic Server product prior to making it available to customers, we
cannot be certain that we have found and fixed all significant performance
errors. If our target customers do not widely adopt and purchase our Traffic
Server product, our business, financial condition and results of operations will
be adversely affected.
Long Sales Cycle for Traffic Server
To date, our customers have taken a long time to evaluate Traffic Server and
many people have been involved in the process. Along with our distribution
partners, we spend a lot of time educating and providing information to our
prospective customers regarding the use and benefits of Traffic Server. Even
after purchase, our customers tend to deploy Traffic Server slowly and
deliberately, depending on the skill set of the customer, the size of the
deployment, the complexity of the customer's network environment, and the
quantity of hardware and the degree of hardware configuration necessary to
deploy Traffic Server. The long sales and implementation cycles for Traffic
Server may cause license revenues and operating results to vary significantly
from period to period.
Need to Expand Sales and Support Organizations
We will need to substantially expand our direct and indirect sales operations,
both domestically and internationally, in order to increase market awareness and
sales of our products. Our products and services require a sophisticated sales
effort targeted at several people within our prospective customers. We have
recently expanded our direct sales force and plan to hire additional sales
personnel. Competition for qualified sales personnel is intense, and we might
not be able to hire the kind and number of sales personnel we are targeting. In
addition, we believe that our future success is dependent upon establishing
successful relationships with a variety of distribution partners. We have
entered into agreements with only a small number of distribution partners. We
cannot be certain that we will be able to reach agreement with additional
distribution partners on a timely basis or at all, or that these distribution
partners will devote adequate resources or have the technical and other sales
capabilities to sell our products.
Similarly, the complexity of our products and the difficulty of installing
them require highly trained customer service and support personnel. We currently
have a small customer service and support organization and will need to increase
our staff to support new customers and the expanding needs of existing
customers. Hiring customer service and support personnel is very competitive in
our industry due to the limited number of people available with the necessary
technical skills and understanding of the Internet.
Risks Associated with Internet Search Engine Service
Our search services revenues result primarily from the number of end-user
searches that are processed by our search engine and the level of advertising
revenue generated by our Internet portal and other web site customers. Our
agreements with customers do not require them to direct end users to our search
services or to use the search service at all. For example, In January 1999,
Microsoft announced that it had signed an agreement to license certain online
communications technologies to a third party and in exchange would adopt the
search technology provided by the third party as the primary search engine for
the MSN
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Network, replacing our search engine. Accordingly, revenues from search services
are highly dependent upon the willingness of customers to promote and use the
search services we provide, the ability of our customers to attract end users to
their online services, the volume of end-user searches that are processed by our
search engine, and the ability and willingness of customers to sell
advertisements on the Internet pages viewed by end users.
Our search contracts require us to meet specific requirements, including the
features provided, performance, the size of the Internet database maintained,
the frequency of updating the search database and reliability. In addition, we
believe it important to maintain features and functionality that are not
explicitly covered in our search agreements, such as high relevance of search
results. The volume of search queries processed by our search engine has grown
significantly, which has placed some strain on our operational capability to
meet customer requirements. If we do not meet these specifications, customers
may cancel our service or choose to use a separate service. We provide our
search engine services from multiple data centers. Circumstances outside of our
control such as fires, earthquakes, power failures, telecommunications failures,
sabotage and similar events could occur that may bring down one or more of our
data centers. For example, in June 1998, lightning struck the facility housing
our data center in Virginia and interrupted service from this center. Service
interruptions for any reason would reduce our revenues and could result in
contract cancellations.
Quarterly Financial Results are Subject to Significant Fluctuations
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, including:
. demand for our products and services;
. the timing of sales of our products and services;
. loss of customers
. changes in the growth rate of Internet usage;
. delays in introducing new products and services;
. new product introductions by competitors;
. changes in our pricing policies or the pricing policies of our competitors;
. the mix of products and services sold;
. the mix of sales channels through which our products and services are sold;
. the mix of domestic and international sales;
. costs related to acquisitions of technology or businesses; and
. economic conditions generally as well as those specific to the Internet and
related industries.
Quarterly revenues and operating results generated by our search engine
business generally depend on per-query fees and shared advertising revenues
received from our search engine customers within the quarter. Advertising
revenues generated by our customers are pursuant to short-term contracts and are
subject to seasonal trends in advertising sales. Revenues from per-query fees
depend on the volume of end-user search queries processed by our search engine.
Reduced advertising sales, a low level of usage by end users or the cancellation
or deferral of any customer contract would reduce our expected revenues, which
could adversely affect our quarterly financial performance.
We expect that a significant portion of our future revenues will come from
licenses of Traffic Server. We further expect that such revenues will come from
licenses of Traffic Server to a small number of customers. The volume and timing
of orders are difficult to predict because the market for Traffic Server is in
its infancy and the sales cycle may vary substantially from customer to
customer. The cancellation or deferral of even a small number of licenses of
Traffic Server would reduce our expected revenues, which would adversely affect
our quarterly financial performance. To the extent significant sales occur
earlier
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than expected, operating results for later quarters may not compare favorably
with operating results from earlier quarters.
We plan to significantly increase our operating expenses to expand our sales
and marketing operations, broaden our customer support capabilities, establish
new search engine data centers, develop new distribution channels, and fund
greater levels of research and development. Our operating expenses are largely
based on anticipated revenue trends and a high percentage of our expenses are
fixed in the short term. As a result, a delay in generating or recognizing
revenue for the reasons set forth above or for any other reason could cause
significant variations in our operating results from quarter to quarter and
could result in substantial operating losses.
Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of our operating results are not a good indication of our future performance. It
is likely that in some future quarter, our operating results may be below the
expectations of public market analysts and investors. In this event, the price
of our Common Stock may fall.
Our Markets are Highly Competitive
We compete in markets that are new, intensely competitive, highly fragmented
and rapidly changing. We face competition in the overall network infrastructure
market as well as the network cache and Internet search segments of this market.
In addition, we have recently entered the online comparison shopping business
and expect to face competition in this market as well. We have experienced and
expect to continue to experience increased competition from current and
potential competitors, many of which have significantly greater financial,
technical, marketing and other resources.
In the network cache market, we compete with several companies, including
CacheFlow, Inc., Cisco Systems, Inc., InfoLibria, Microsoft Corporation, Mirror
Image Internet, Inc., Netscape Communications Corp., Network Appliance, Inc.,
Novell, Inc., and Spyglass, Inc. We also compete against freeware caching
solutions including CERN, Harvest and Squid. We are aware of numerous other
major software developers as well as smaller entrepreneurial companies that are
focusing significant resources on developing and marketing products and services
that will compete with Traffic Server. We believe that Traffic Server may face
competition from other providers of hardware and software offering competing
solutions to network infrastructure problems, including networking hardware and
companion software manufacturers such as Ascend Communications, Inc., Bay
Networks, Inc., Ciena Corporation and IBM Corporation; hardware manufacturers
such as Digital Equipment Corporation, Hewlett-Packard Company, Intel
Corporation, Motorola, Inc. and Sun Microsystems, Inc.; telecommunications
providers such as AT&T, Inc., MCI Worldcom, Inc., and regional Bell operating
companies; cable TV/communications providers such as Continental Cablevision,
Inc., TimeWarner, Inc. and regional cable operators; software database companies
such as Informix Corporation, Oracle Corporation and Sybase, Inc.; and large
diversified software and technology companies including Microsoft, Netscape and
others. Cisco Systems, Microsoft and Netscape provide or have announced their
intentions to provide a range of software and hardware products based on
Internet protocols and to compete in the broad Internet/intranet software market
as well as in specific market segments in which we compete.
We compete with a number of companies to provide Internet search services,
many of which have operated services in the market for a longer period, have
greater financial resources, have established marketing relationships with
leading online services and advertisers, and have secured greater presence in
distribution channels. Competitors that offer search services to online service
providers include Compaq Computer Corporation (Alta Vista), Excite, Inc.,
Infoseek Corporation, Lycos Corporation, and Northern Light, Inc., among others.
In addition, large media companies such as The Walt Disney Company and NBC
Enterprises, and other Internet-based companies such as America Online, Inc. and
At Home Corporation have recently made investments in or acquired Internet
search engine companies and we believe that other large media enterprises may
enter or expand their presence in the Internet search engine market, either
directly or indirectly through collaborations or other strategic alliances.
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The market for our shopping engine application is rapidly evolving and
intensely competitive. Our current and potential competitors include other
providers of shopping technologies and services including Jango.com, owned by
Excite, Junglee, recently acquired by Amazon.com, Inc., and mySimon.com, Inc.;
and various online retailers and aggregators of merchandise including
Amazon.com, Bottom Dollar, owned by WebCentric, Inc., eBay, Inc., InfoSpace.com,
Inc. and Yahoo! Inc. We believe the principal factors that will draw end users
to an online shopping application include brand availability, selection,
personalized services, convenience, price, accessibility, customer services,
quality of search tools, quality of content, and reliability and speed of
fulfillment for products ordered. We will have little or no control over many of
these factors.
Our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements than we can. In addition, our
current and potential competitors may bundle their products with other software
or hardware, including operating systems and browsers, in a manner that may
discourage users from purchasing products offered by us. Also, current and
potential competitors have greater name recognition, more extensive customer
bases that could be leveraged, and access to proprietary content. Increased
competition could result in price reductions, fewer customer orders, fewer
search queries served, reduced gross margins and loss of market share.
Risks Associated with Internet Shopping Engine
In September 1998, we acquired C2B Technologies Inc. to accelerate our entry
into the online comparison shopping business. Our Internet shopping engine is
still under development and is available only in "preview" versions. Like our
Internet search engine, we plan to make our Internet shopping engine available
to Internet portals and other web site customers and will not develop our own
branded online shopping site. We are developing the shopping engine to enable
Internet portals and other web site customers to provide shopping services to
their end users.
We are still developing the business model for our shopping engine and
anticipate that revenues will be generated from revenue sharing arrangements
with online merchants, and Internet portals and other web site customers using
the shopping engine. The success of our shopping engine will depend on our
ability to establish strong relationships with customers and online merchants,
the dollar volume of online purchases generated by participating merchants, and
the level of advertising revenues generated by customers. In addition, the
shopping engine will need to collect and organize vast amounts of electronic
information from online merchants and publishers of comparative product
information, which is a highly complex task. Developing these capabilities and
other required features for the shopping engine will require significant
additional expenses and management and development resources. We cannot be
certain that our entry into the online shopping business will be successful.
Need to Manage Changing Operations
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We continue to increase the scope of our operations
domestically and internationally and have grown our headcount substantially. At
September 30, 1997, we had a total of 67 employees and at December 31, 1998 we
had a total of 219 employees. This growth has placed, and our anticipated future
operations will continue to place, a significant strain on our management
systems and resources. We expect that we will need to continue to improve our
financial and managerial controls and reporting systems and procedures, enhance
our internal and external security systems, and will need to continue to expand,
train and manage our work force worldwide. Furthermore, we expect that we will
be required to manage multiple relationships with various customers and other
third parties.
In October 1998, we entered into an 11-year lease for 177,000 square feet of
new office space in Foster City, California. We anticipate that the lease will
commence in June 1999. The lease is for substantially more space than we will
need for the next several years. The commercial real estate market in San Mateo
County, California is volatile and unpredictable in terms of rental fees,
occupancy rates and
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preferred locations. If we fail to sublease a significant portion or all of our
existing space or a substantial portion of our new space, we will incur
substantial additional operating expense during the lease term.
Dependence Upon Key Personnel
We intend to hire a significant number of additional sales, support,
marketing, and research and development personnel in calendar 1999 and beyond.
Competition for these individuals is intense, and we may not be able to attract,
assimilate or retain additional highly qualified personnel in the future. Our
future success also depends upon the continued service of our executive officers
and other key sales, marketing and support personnel. In addition, our products
and technologies are complex and we are substantially dependent upon the
continued service of our existing engineering personnel, and especially our
founders. None of our officers or key employees is bound by an employment
agreement for any specific term. Our relationships with these officers and key
employees are at will. We do not have "key person" life insurance policies
covering any of our employees.
Customer Concentration
We have generated a substantial portion of our historical search services
revenues and network applications revenues from a limited number of customers.
We expect that a small number of customers will continue to account for a
substantial portion of revenues for the foreseeable future. As a result, if we
lose a major customer, or in the case of our search engine business, if there is
a decline in usage of any customer's search service, our revenues would be
adversely affected. In addition, we cannot be certain that customers that have
accounted for significant revenues in past periods, individually or as a group,
will continue to generate revenues in any future period.
Risks of Infringement and Proprietary Rights
Our products and services operate in part by making copies of material
available on the Internet and other networks and making this material available
to end users from a central location. This creates the potential for claims to
be made against us (either directly or through contractual indemnification
provisions with customers) for defamation, negligence, copyright or trademark
infringement, personal injury, invasion of privacy or other legal theories based
on the nature, content or copying of these materials. These claims have been
threatened against us from time to time, and have been brought, and sometimes
successfully pressed, against online service providers in the past. It is also
possible that if any information provided through our search engine or shopping
engine, or information that is copied and stored by customers that have deployed
Traffic Server, such as stock quotes, analyst estimates or other trading
information, contains errors, third parties could make claims against us for
losses incurred in reliance on this information. Although we carry general
liability insurance, our insurance may not cover potential claims of this type
or may not be adequate to protect us from all liability that may be imposed.
Our success and ability to compete are substantially dependent upon our
internally developed technology, which we protect through a combination of
patent, copyright, trade secret and trademark law. We generally enter into
confidentiality or license agreements with our employees, consultants and
corporate partners, and generally control access to and distribution of our
software, documentation and other proprietary information. Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology. Policing unauthorized use
of our products is difficult, and we cannot be certain that the steps we have
taken will prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in
the United States.
Substantial litigation regarding intellectual property rights exists in the
software industry. We expect that software products may be increasingly subject
to third-party infringement claims as the number of competitors in our industry
segments grows and the functionality of products in different industry segments
overlaps. Lycos recently announced that it is the exclusive licensee of a patent
covering a method of crawling information on the Internet, and that it may bring
actions against companies that it believes are infringing this patent in the
future. We also believe that many of our competitors in the network cache
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business have filed or intend to file patent applications covering aspects of
their technology that they may claim our technology infringes. We cannot be
certain that Lycos or other third parties will not make a claim of infringement
against us with respect to our products and technology. Any claims, with or
without merit, could be time-consuming to defend, result in costly litigation,
divert management's attention and resources, cause product shipment delays or
require us to enter into royalty or licensing agreements. These royalty or
licensing agreements, if required, may not be available on acceptable terms, if
at all. A successful claim of product infringement against us and our failure or
inability to license the infringed or similar technology could adversely affect
our business.
Dependence on Strategic Relationships
We believe that our success in penetrating our target markets depends in part
on our ability to develop and maintain strategic relationships with key hardware
and software vendors, distribution partners and customers. We believe these
relationships are important in order to validate our technology, facilitate
broad market acceptance of our products, and enhance our sales, marketing and
distribution capabilities. If we are unable to develop key relationships or
maintain and enhance existing relationships, we may have difficulty selling our
products and services.
We have from time to time licensed minor components from others such as
reporting functions and security features and incorporated them into our
products. If these licensed components are not maintained, it could impair the
functionality of our products and require us to obtain alternative products from
other sources or to develop this software internally, either of which could
involve costs and delays as well as diversion of engineering resources.
Rapid Technological Change
The network infrastructure market is characterized by rapid technological
change, frequent new product introductions, changes in customer requirements and
evolving industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards could render our
existing products obsolete. Our future success will depend upon our ability to
develop and introduce a variety of new products and product enhancements to
address the increasingly sophisticated needs of our customers. We have
experienced delays in releasing new products and product enhancements and may
experience similar delays in the future. Material delays in introducing new
products and enhancements may cause customers to forego purchases of our
products and purchase those of our competitors.
Risks Associated with International Operations
We market and sell our products in the United States and internationally. We
have established a subsidiary located in England to market and sell our products
in Europe. We have offices in Germany, Korea and Japan to market and sell our
products in those countries and surrounding regions. We plan to establish
additional facilities in other parts of the world. The expansion of our existing
international operations and entry into additional international markets will
require significant management attention and financial resources. We cannot be
certain that our investments in establishing facilities in other countries will
produce desired levels of revenue. We currently have limited experience in
developing localized versions of our products and marketing and distributing our
products internationally. In addition, international operations are subject to
other inherent risks, including:
. the impact of recessions in economies outside the United States;
. greater difficulty in accounts receivable collection and longer collection
periods;
. unexpected changes in regulatory requirements;
. difficulties and costs of staffing and managing foreign operations;
. reduced protection for intellectual property rights in some countries;
. potentially adverse tax consequences; and
. political and economic instability.
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Our international revenues are generally denominated in local currencies. We
do not currently engage in currency hedging activities. Although exposure to
currency fluctuations to date has been insignificant, future fluctuations in
currency exchange rates may adversely affect revenues from international sales.
Year 2000 Risks
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software that
records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
We are in the early stages of assessing our Year 2000 readiness. We have only
conducted a preliminary investigation and performed limited testing to determine
whether our Traffic Server and search engine software are Year 2000 compliant.
We have not performed any evaluation regarding our shopping engine application.
Our software products operate in complex network environments and directly and
indirectly interact with a number of other hardware and software systems.
Despite preliminary investigation and testing by us and our partners, our
software products and the underlying systems and protocols running our products
may contain errors or defects associated with Year 2000 date functions. We are
unable to predict to what extent our business may be affected if our software or
the systems that operate in conjunction with our software experience a material
Year 2000 failure. Known or unknown errors or defects that affect the operation
of our software could result in delay or loss of revenue, interruption of search
or shopping services, cancellation of customer contracts, diversion of
development resources, damage to our reputation, increased service and warranty
costs, and litigation costs, any of which could adversely affect our business,
financial condition and results of operations.
Risks Associated with Potential Acquisitions
We intend to make investments in complementary companies, products or
technologies. If we buy a company, we could have difficulty in assimilating that
company's personnel and operations. In addition, the key personnel of the
acquired company may decide not to work for us. If we make other types of
acquisitions, we could have difficulty in assimilating the acquired technology
or products into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses.
Furthermore, we may have to incur debt or issue equity securities to pay for any
future acquisitions, the issuance of which could be dilutive to Inktomi or our
existing stockholders.
Government Regulation and Legal Uncertainties
Laws and regulations directly applicable to communications and commerce over
the Internet are becoming more prevalent. The most recent session of the United
States Congress resulted in Internet laws regarding children's privacy,
copyrights, taxation and the transmission of sexually explicit material. The
European Union recently enacted its own privacy regulations and is currently
considering copyright legislation that may extend the right of reproduction held
by copyright holders to include the right to make temporary copies for any
reason. The law of the Internet, however, remains largely unsettled, even in
areas where there has been some legislative action. It may take years to
determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the Internet. In addition, the
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business online. The
adoption or modification of laws or regulations relating to the Internet could
adversely affect our business.
Potential Volatility of Stock Price
The market price of our Common Stock has fluctuated in the past and is likely
to fluctuate in the future. In addition, the securities markets have experienced
significant price and volume fluctuations and the market prices of the
securities of Internet-related companies have been especially volatile.
Investors may be unable to resell their shares of our Common Stock at or above
the offering price. In the past, companies that have experienced volatility in
the market price of their stock have been the object of
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securities class action litigation. If we were the object of securities class
action litigation, it could result in substantial costs and a diversion of
management's attention and resources.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number
- ------
2.1** Agreement and Plan of Reorganization dated August 31, 1998 by and
among Inktomi, IC Merger Corp. and C\\2\\B Technologies Inc.
3.2*** Amended and Restated Certificate of Incorporation of Inktomi.
3.4*** Bylaws of Inktomi.
4.1*** Specimen Common Stock Certificate.
10.1*** Form of Indemnification Agreement between Inktomi and each of its
directors and officers.
10.2*** 1998 Stock Plan and form of agreement thereunder.
10.3*** 1998 Employee Stock Purchase Plan and form of agreements thereunder.
10.4*** 1996 Equity Incentive Plan and form of agreement thereunder.
10.5*** Fifth Amended and Restated Investors' Rights Agreement dated as
February 13, 1998 among Inktomi and certain of its securityholders
named therein.
10.6*** Executive Employment Agreement dated as of July 1, 1996 between
Inktomi and David C. Peterschmidt.
10.7* Amended and Restated Loan and Security agreement dated as of
September 2, 1998 between Inktomi and Silicon Valley Bank.
10.8*** Sublease Agreement dated November 27, 1996 between Inktomi and
Macromedia, Inc.
10.9*** Office Lease dated July 31, 1997 between Inktomi and Norfolk Atrium,
a California limited partnership.
10.10*** Underlease Agreement (undated) between Inktomi Limited and Technomic
Research Associates Limited.
10.11+*** Information Services Agreement dated as of April 1, 1998 between
Inktomi and Wired Digital, Inc.
10.12+*** Information Services Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.13+*** Software Development Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.14+*** Software Hosting Agreement dated as of July 27, 1997 between Inktomi
and Microsoft Corporation.
10.15+*** Loan Agreement dated as of July 27, 1997 between Inktomi and
Microsoft Corporation.
10.16*** Security Agreement dated as of July 27, 1997 between Inktomi and
Microsoft Corporation.
10.17+*** Escrow Agreement dated as of July 29, 1997 among Inktomi, Data Base,
Inc., and Microsoft Corporation.
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10.18**** Lease dated May 14, 1998 between Inktomi and B.F. Saul Real Estate
Investment Trust.
10.19* First Amendment dated July 13, 1998 to Office Lease dated July 31,
1997 between Inktomi and Norfolk Atrium, a California limited
partnership.
10.20* Office Lease dated October 9, 1998 between Inktomi and WHFST Real
Estate Limited Partnership, a Delaware limited partnership.
10.21* C2B Technologies Inc. (formerly BeyondNews, Inc.) 1997 Stock Plan
and form of agreement thereunder.
10.22** Registration Rights Agreement dated September 25, 1998 between
Inktomi and former stockholders of C2B Technologies Inc.
(included in Exhibit 2.1)
10.23***** 1998 Nonstatutory Stock Option Plan and form of agreement thereunder
21.1* Subsidiaries of Inktomi.
27.1 Financial Data Schedule.
- ---------------
* Incorporated by reference from Inktomi's Registration Statement on Form S-
1 (Reg. No. 333-66661), as amended.
** Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on October 9, 1998, as amended.
*** Incorporated by reference from Inktomi's Registration Statement on Form S-
1 (Reg. No. 333-50247), as amended.
**** Incorporated by reference from Inktomi's Quarterly Report on Form 10-Q
filed with the Commission on August 13, 1998.
***** Incorporated by reference from Inktomi's Registration Statement on Form S-
8 (Reg. No.333-71037)
+ Certain portions of this exhibit have been granted confidential
treatment by the Commission. The omitted portions have been separately
filed with the Commission.
(b) Reports on Form 8-K
On December 29, 1998 Inktomi filed a Form 8-K announcing a two-for-one
stock split (in the form of a 100% stock dividend) for stockholders of
record on January 12, 1998.
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
undersigned, thereunto duly authorized.
Inktomi Corporation
Date: February 12, 1999 By: /s/ Jerry M. Kennelly
----------------------------------
Jerry M. Kennelly,
Vice President of Finance and
Chief Financial Officer
(duly authorized officer and
principle financial officer)
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INDEX TO EXHIBITS
(a) Exhibits
Exhibit
Number
- ------
2.1** Agreement and Plan of Reorganization dated August 31, 1998 by and
among Inktomi, IC Merger Corp. and C\\2\\B Technologies Inc.
3.2*** Amended and Restated Certificate of Incorporation of Inktomi.
3.4*** Bylaws of Inktomi.
4.1*** Specimen Common Stock Certificate.
10.1*** Form of Indemnification Agreement between Inktomi and each of its
directors and officers.
10.2*** 1998 Stock Plan and form of agreement thereunder.
10.3*** 1998 Employee Stock Purchase Plan and form of agreements thereunder.
10.4*** 1996 Equity Incentive Plan and form of agreement thereunder.
10.5*** Fifth Amended and Restated Investors' Rights Agreement dated as
February 13, 1998 among Inktomi and certain of its securityholders
named therein.
10.6*** Executive Employment Agreement dated as of July 1, 1996 between
Inktomi and David C. Peterschmidt.
10.7* Amended and Restated Loan and Security agreement dated as of
September 2, 1998 between Inktomi and Silicon Valley Bank.
10.8*** Sublease Agreement dated November 27, 1996 between Inktomi and
Macromedia, Inc.
10.9*** Office Lease dated July 31, 1997 between Inktomi and Norfolk Atrium,
a California limited partnership.
10.10*** Underlease Agreement (undated) between Inktomi Limited and Technomic
Research Associates Limited.
10.11+*** Information Services Agreement dated as of April 1, 1998 between
Inktomi and Wired Digital, Inc.
10.12+*** Information Services Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.13+*** Software Development Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.14+*** Software Hosting Agreement dated as of July 27, 1997 between Inktomi
and Microsoft Corporation.
10.15+*** Loan Agreement dated as of July 27, 1997 between Inktomi and
Microsoft Corporation.
10.16*** Security Agreement dated as of July 27, 1997 between Inktomi and
Microsoft Corporation.
10.17+*** Escrow Agreement dated as of July 29, 1997 among Inktomi, Data Base,
Inc., and Microsoft Corporation.
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10.18**** Lease dated May 14, 1998 between Inktomi and B.F. Saul Real Estate
Investment Trust.
10.19* First Amendment dated July 13, 1998 to Office Lease dated July 31,
1997 between Inktomi and Norfolk Atrium, a California limited
partnership.
10.20* Office Lease dated October 9, 1998 between Inktomi and WHFST Real
Estate Limited Partnership, a Delaware limited partnership.
10.21* C2B Technologies Inc. (formerly BeyondNews, Inc.) 1997 Stock Plan
and form of agreement thereunder.
10.22** Registration Rights Agreement dated September 25, 1998 between
Inktomi and former stockholders of C2B Technologies Inc.
(included in Exhibit 2.1)
10.23***** 1998 Nonstatutory Stock Option Plan and form of agreement thereunder
21.1* Subsidiaries of Inktomi.
27.1 Financial Data Schedules.
- ---------------
* Incorporated by reference from Inktomi's Registration Statement on Form
S-1 (Reg. No. 333-66661), as amended.
** Incorporated by reference from Inktomi's Current Report on Form 8-K
filed with the Commission on October 9, 1998, as amended.
*** Incorporated by reference from Inktomi's Registration Statement on Form
S-1 (Reg. No. 333-50247), as amended.
**** Incorporated by reference from Inktomi's Quarterly Report on Form 10-Q
filed with the Commission on August 13, 1998.
***** Incorporated by reference from Inktomi's Registration Statement on Form
S-8 (Reg. No.333-71037)
+ Certain portions of this exhibit have been granted confidential treatment
by the Commission. The omitted portions have been separately filed with
the Commission.
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INKTOMI
CORP. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
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0
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